
Workers walk through the financial district of Canary Wharf ahead of the Bank of England’s interest rate decision in London, Britain, August 3, 2023. REUTERS/Toby Melville/File Photo License Rights Purchase
LONDON, Sept 12 (Reuters) – Another record month of UK wage growth prompted the Bank of England to raise interest rates again, possibly for the last time in the current cycle, as data on Tuesday also pointed to a cooling labor market.
Growth in average weekly earnings in the three months to July increased to 8.5% year-on-year, up from 8.4% a month earlier, and was a new high, excluding distortions during the COVID-19 pandemic, in more than 20 years of records. This was reported by the Office for National Statistics (ONS).
Most investors believe this will prompt the Bank of England to raise interest rates again on September 22 to 5.5% from 5.25% as it tries to tame the highest rate of inflation among the major advanced economies.
But other gauges of the labor market highlighted caution about the economic outlook among many senior Bank of England officials.
The unemployment rate rose, the number of people in work fell sharply, and the number of job openings fell below 1 million for the first time in two years.
“The bigger question is going forward,” said Hugh Gimber, global market strategist at JP Morgan Asset Management. “The bank will not want to continue tightening when they have watched other central banks around the world come to a standstill.
“However, if the inputs are not finalized, another final rate increase of 5.75% is planned.”
Last week, Bank of England Governor Andrew Bailey said the central bank was “much closer” to ending rate hikes, but the cost of borrowing could still rise due to persistent inflationary pressures.
The unemployment rate rose to 4.3% in the three months to July from 4.2% a month earlier, the highest in the three months to the end of September 2021, the ONS said.
The unemployment rate is already higher than the 4.1% the Bank of England posted for the third quarter as a whole when it released its latest set of forecasts in early August.
Employment fell by a larger-than-expected 207,000 in the three months to July, including 182,000 in London – the biggest such fall since the three months to October 2020.
The number of 16-24-year-olds in employment fell by 176,000 in the three months to July – the second biggest such fall on record.
“The labor market is showing more signs of cracks than ever before,” Nomura economists said, adding that they expect the Bank of England’s Monetary Policy Committee next week to be more divided over rate hikes than it was in the previous months.
The pound fell slightly against the dollar after the data.
Wages continued to rise rapidly and outpace inflation. Pay packages excluding bonuses were 7.8% higher than a year earlier – the highest since ONS records began in 2001 and in line with economists’ forecasts in a Reuters poll.
Adjusted for consumer price inflation, total average weekly earnings rose 0.6%, the first positive figure since March 2022.
While the news is good for workers, wages in real terms remain no better than they were more than 15 years ago.
“Wages growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we need to stick to our plan to halve inflation,” said Chancellor of the Exchequer Jeremy Hunt.
Reporting by Andy Bruce and David Milliken; Editing by Sachin Ravikumar, David Holmes and Catherine Evans
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